Devoted to Managers and those that seek to improve their management skills

Warren Buffett and Secrets of Management - 16

Buffett has said more than once in the past that he assesses management based upon the condition of the company, division or unit that they are placed in at the time of promotion or installment.

As a result, he measures performance based upon that reality, rather than simply throwing numbers around concerning where things should be, assuming the business health of the situation.

One example would be Gen Re, one of their insurance companies only scored an underwriting profit of $3 million for the year. It was far below the normally extremely successful underwriting business of all of Berkshires (BRK-A) insurance companies.

Referring to then manager Joe Brandon, Buffett said:

"At General Re, Joe Brandon has restored the long-admired culture of underwriting discipline that, for a time, had lost its way.  

"The excellent results he realized in 2004 on current business, however, were offset by adverse developments from the years before he took the helm."

In the annual letter he writes to shareholders, that year he place the blame for the performance where it belonged, on the decisions that had been made before Brandon had been made CEO.

The point in all of this is that we must understand the condition of the company, challenges ahead, and a realistic time in which it will take any good manager or CEO to turn it around. Buffett knew he had the right person in leadership in Gen RE, knew the condition of the company when Brandon was installed, and understood the time frame that it would take to turn the company around.

The results are that he kept a leader he had confidence in, explained the reason for the slow performance, and placed the blame where it belonged. If he had done it any differently, it would have been a disaster all around, and news would have spread to all the Berkshire companies about what happened. It's a mistake he's never made.

The point is that Buffett knows his companies and their conditions, and sets his expectations based upon that knowledge. An extraordinary benefit to all the companies and business leaders under his scrutiny.

Other Buffett Resources:

“Everybody Else is Doing it”

MSU students have special visit with billionaire Warren Buffett

WARREN BUFFETT PHILOSOPHY II

Sticking to what you know - Core businesses

Buffett: Portrait of an Artist as a Young Man